Bundesbank Cuts Germany's Growth Outlook on Weak External Demand

Bundesbank President Weidmann is silhouetted in front of the Frankfurt skyline at the Bundesbank headquarters

Germany's central bank has lowered its economic growth forecast for the country but affirmed that the worst is over for it and the eurozone.

The Bundesbank cut its 2013 growth projection to 0.3% from the 0.4% projected in December, and growth projection for 2014 was lowered to 1.5% from 1.9%.

Europe's largest economy was relatively resilient to the crisis in the eurozone, but witnessed a contraction late last year and narrowly avoided a recession in the first quarter.

"In the euro area the economy appears to be bottoming out. Nevertheless, the Bundesbank sees continuing structural problems as standing in the way of a rapid improvement," the Frankfurt-based bank said in a statement.

"This is likely to place a major strain on the German economy."

The outlook downgrade came as the bank assessed the country's external environment as weak. However, it projects the ongoing recovery to gather pace in the second quarter, on the back of improved labour market, a sharp increase in wages and easing inflation.

"Much will depend on whether the economic situation stabilises in the euro-area crisis countries and whether expansionary forces will gradually gain the upper hand there," Bundesbank President Jens Weidmann said.

"A sustained upturn in the world economy is just as important as a precondition for the growth path we have assumed."

Despite a 0.1% growth in the first quarter, business confidence in the economy rose in May for the first time since February.

The bank said it does not expect any growth stimulus in the form of better demand from the euro area until 2014 at the earliest.

The revised forecast comes a day after the European Central Bank kept borrowing costs at a record low of 0.5% on Thursday, and projected that the eurozone economy as a whole would shrink by 0.6% this year and then grow by 1.1% next year.